|
The first quarter is not turning out to be as strong as hoped for housing and manufacturing. Manufacturing is gaining but less than hoped. Housing may be dipping again. But the consumer has picked up more of the growth load.
 Equities ended the week with moderate gains and with relatively modest daily volatility. March and the first quarter posted strong gains.
Turning to daily activity, Monday had the biggest moves and on the upside. FedSpeak outweighed economic news. Pending home sales unexpectedly slipped and the Dallas Fed manufacturing survey was sluggish. But Fed Chairman Ben Bernanke addressed a morning session of the National Association of Business Economists (NABE), focusing on the labor market. He said that he sees the need for continued monetary accommodation to boost demand and lower unemployment.
Equities dipped Tuesday as a reading on consumer confidence disappointed. Other economic news was mixed with a flat Case-Shiller a little above expectations, but Richmond Fed manufacturing coming in soft. At mid-week, it was about expectations. Durables orders rebounded but less than projected, bumping stocks down for the day. Also, declining oil and metals prices gave investors an excuse to sell commodity-related shares.
Major indexes were mostly down Thursday as initial jobless claims dipped but not as much as forecast. GDP revisions were as expected and Kansas City Fed manufacturing was mixed. Stocks closed the week on an up note as consumer spending was notably stronger than anticipated and consumer sentiment beat forecasts.
Separately from the address to NABE, Fed Chairman Ben Bernanke on Tuesday and Thursday gave the last two of four academic lectures on the role of the Fed in the economy and on the recent financial crisis. While the lectures were concise, informative, and offer good references for recent economic history, there were no market moving comments on those two days.
 Equities were mostly up this past week. The Dow was up 1.0 percent; the S&P 500, up 0.8 percent; the Nasdaq, up 0.8 percent; the Russell 2000, up marginally but essentially unchanged; and the Wilshire, up 0.7 percent.
Equities saw healthy gains in March. The Dow was up 2.0 percent; the S&P 500, up 3.1 percent; the Nasdaq, up 4.2 percent; the Russell 2000, up 2.4 percent; and the Wilshire, up 2.8 percent.
 The first quarter overall was quite strong. The Dow was up 8.1 percent; the S&P 500, up 12.0 percent; the Nasdaq, up 18.7 percent; the Russell 2000, up 12.1 percent; and the Wilshire, up 12.2 percent. For the S&P 500, the first quarter was the strongest quarterly gain since 1998.
For the year-to-date, major indexes are up as follows: the Dow, up 8.1 percent; the S&P 500, up 12.0 percent; the Nasdaq, up 18.7 percent; the Russell 2000, up 12.1 percent; and the Wilshire, up 12.2 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields this past week were mixed but mostly down and little changed. The only notable moves were Tuesday, Thursday, and Friday.
Rates dipped moderately on Tuesday on the decline in consumer confidence. After slight gains Wednesday, rates declined Thursday on a drop in initial jobless claims that was not as large as projected. Rates firmed moderately at the end of the week on a better-than-expected gain in personal consumption expenditures and a rise in consumer sentiment.
For this past week Treasury rates were mostly down as follows: the 2-year note, down 2 basis points; the 5-year note, down 4 basis points; the 7-year note, down 2 basis points; and the 10-year note, down 2 basis points. The 3-month T-bill was unchanged while the 30-year bond firmed 4 basis points.
During the first quarter, the yield curve has been drifting upward due to reduced flight to safety as European sovereign debt problems have been viewed as making progress and on generally improved economic data (though not as strong as hoped).
 The spot price of crude ended the week down notably. The significant moves were Wednesday and Thursday. At mid-week, the spot price of West Texas Intermediate fell a little more than a buck a barrel on the disappointing durables orders report, a rise in stockpiles, and on comments from Administration officials said a release from the Strategic Petroleum Reserve was possible. Crude dropped 2-3/4 dollars Thursday on jobless claims falling less than expected and on comments from Saudi Arabian officials that country would act to bring down oil prices.
Net for the week, the spot price for West Texas Intermediate dropped $3.46 per barrel to settle at $103.02.
While many economists had hoped for some acceleration in growth for the first quarter, that does not appear to be happening as manufacturing and housing is not as healthy as earlier forecast. Yet with help from stronger consumer spending, overall growth remains moderately positive. But first, a look back at Q4.
 The economy in the fourth quarter was essentially as earlier believed except that domestic demand was modestly stronger. For its final estimate, the Commerce Department kept fourth quarter GDP growth at 3.0 percent, matching the second estimate for the overall number. The latest quarter was stronger than the 1.8 percent rise in the third quarter.
Demand numbers were essentially unchanged but incrementally better on the domestic side of purchases. Final sales of domestic product increased an annualized 1.1 percent, matching the prior estimate of 1.1 percent for the fourth quarter. Final sales to domestic purchasers (excludes net exports) rose a revised 1.3 percent, compared to the second estimate of 1.1 percent. Both measures remained significantly slower than in the third quarter.
Economy-wide inflation according to the GDP price index was unrevised at a 0.9 percent annualized rate.
Basically, the economy in the fourth quarter was where we earlier believed. More recent monthly shows improvement with key numbers coming from the personal income report which helps form a foundation for first quarter GDP estimates.
 Personal income growth was up but below expectations. Personal income in February advanced 0.2 percent after a 0.2 percent gain the month before. The February number posted lower than analysts’ forecast for a 0.4 percent surge. The important wages & salaries component was a little stronger, advancing 0.3 percent, following a 0.4 percent gain in January. Overall income growth was held back by flat interest income and flat wages in the government sector.
 Consumer spending in January accelerated to a 0.8 percent increase, compared to 0.4 percent in January (previously up 0.2 percent). For the latest month, durables jumped 1.6 percent, nondurables increased 0.9 percent, and services gained 0.6 percent. Motor vehicle sales and higher gasoline prices were behind the gains in the goods portion of PCEs.
 Inflation was mixed. The headline PCE price index got hotter, rising to 0.3 percent from 0.2 percent in January, reflecting stronger energy costs. The core rate eased to 0.1 percent from 0.2 percent the prior month.
Year-on-year, headline prices were up 2.3 percent, compared to 2.4 percent in January. The core was up 1.9 percent, the same as in January. While both series are near the Fed’s goal of 2 percent inflation, recently higher energy costs have not fully filtered into the numbers through higher costs for businesses. Higher energy costs may end up boosting both overall CPI and core CPI inflation. While many Fed officials are sticking with the line that higher energy costs are transitory, some are becoming more vocal about pending inflation pressures.
The consumer sector is moving forward despite confidence numbers that suggest otherwise. Importantly, the consumer is actually confident enough about the economy (those with jobs) to spend more. This is a good development but the overall picture is still moderate growth.
For March, the Conference Board’s measure eased while the Reuters/University of Michigan indicator showed modest improvement. Both, however, remain at low levels.
While the trend still appears to be up, the consumer confidence index in March dipped to 70.2 from February's 71.6.
Weakness was in the expectations component, which is more heavily weighted than the present situation component. Expectations fell back 5.4 points to 83.0. Here details show less optimism for the employment outlook and a little less optimism on income prospects where however optimists, at 15.8 percent, still outnumber pessimists at 14.6 percent. This is a reminder that fewer layoffs (jobless claims) do not mean more hiring.
 The present situation component rose 4.6 points to 51.0 which is the highlight of the March report.
The Reuters/University of Michigan consumer sentiment index is at its best level of the recovery, posting at 76.2 for March final versus February final at 75.3. This report is broken into half month sections and the implied reading for the latter half is 77.1. The last time the index was in this area was early 2008.
The current conditions index was the stand-out, up three points in the month to 86.0. But confidence in the outlook is lagging with the expectations component, at 69.8, slipping five tenths in the month from February's 2-1/2 year high of 70.3.
 Durables orders rebounded in the latest month but disappointed in magnitude though the ex-transportation component was as expected. In February, new factory orders for durables rebounded 2.2 percent, following a revised 3.6 percent drop in January and 3.3 percent jump in December.
Excluding transportation, durables made a 1.6 percent comeback after a revised 3.0 percent decline in January, and a 2.3 percent advance in December.
The very volatile transportation rebounded 3.9 percent in February after dropping 5.3 percent the month before. Subcomponent strength was led by defense aircraft with increases also seen in nondefense aircraft and motor vehicles. Outside of transportation, gains were widespread.
On a monthly basis, the volatility in transportation is not a big deal. Although the ex-transportation component rebounded and met expectations, the overall trajectory of manufacturing is not as strong as hoped but is still providing forward momentum for the economy. Regional manufacturing surveys show some slowing in growth for this sector.
 According to the Dallas Fed, manufacturing activity in Texas was mixed in March, continuing to expand but at a slower pace. The general business activity index was positive for the third month in a row, although it fell from 17.8 to 10.8. The company outlook index posted a sixth consecutive positive reading, but it also retreated slightly, falling to 9.5 from 15.8 last month.
 The production index, a key measure of state manufacturing conditions, held steady at 11.1, suggesting growth continued at about the same pace as last month. However, the new orders index fell from 5.8 in February to zero, suggesting that demand stalled.
 The Richmond Fed’s headline composite index eased to 7 in March from 20 the prior month.
Other indicators showed much of the same pattern as new orders index slowed by 10 points to 11, still over zero to indicate a monthly increase but significantly less of an increase than February. Also, the shipments index dropped to 2 from 25 in February.
According to the Kansas City Fed, growth in 10th District manufacturing activity moderated slightly but remained generally solid overall, with a continued positive outlook for future months. The composite index was 9 in March, down from 13 in February but up from 7 in January. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.
Manufacturing growth eased in both durable and nondurable goods-producing plants, with the exception of computer and electronic equipment products. Other current indexes were mixed in March but remained mostly solid. The production index dropped from 20 to 13, and the order backlog index also fell after rising last month. In contrast, the shipments and new order indexes both increased from 8 to 17, and employment index also edged higher.
 Existing home sales may not have the modest upward momentum some believed early this year. The pending home sales index, which tracks contract signings for existing homes, fell 0.5 percent in February, following a 2.0 percent gain the month before. Three of four regions showed monthly declines including the South which is by far the largest housing region.
An important fact about pending home sales is that contracts do not always make it to closing due to credit and appraisal snags. These problems are bigger than in the past, adding further negative implications to the February dip in pending sales. Mild winter weather was supposed to have helped support sales traffic and actual purchases, but that does not appear to have happened.
 The recent decline in home prices took a month off with the Case-Shiller home price index coming in at unchanged in January, following a 0.5 percent drop in December for the 20-city composite, seasonally adjusted. This index had declined five months in a row. Since the start of the recent downturn in June 2010, this index has fallen in 17 of the last 20 months.
However, published monthly readings for this index are three-month averages and imply that underlying January prices, in order to offset the declines of the prior two months, actually posted a notable gain.
Improvement was seen in the year-on-year rate which at minus 3.8 percent was two tenths better than December and one tenth better than November.
Housing is a largely local issue and relative strength in prices are very mixed on a city to city basis. Gains were led by Phoenix for a third month in a row. Home prices in Atlanta extended a long run of significant deterioration.
Currently, the first quarter is looking to be only as strong as the fourth quarter and not more robust as earlier hoped. Still, the recovery continues upward.
Traders will be honing their positions ahead of Friday’s employment report. Among the reports with related data are ISM manufacturing on Monday and both the ISM non-manufacturing and ADP on Wednesday. The consumer sector is updated with motor vehicle sales on Tuesday. And the QE3 debate continues with the release of Fed minutes on Tuesday as well.
The composite index from the ISM manufacturing survey slipped in February to 52.4, above 50 to indicate monthly growth, but below January's 54.1 to indicate a slower rate of monthly growth. The new orders index slowed to 54.9 from 57.6 in January, as did backlogs, at 52.0 versus 52.5. Production also slowed, 55.3 versus 55.7, as did employment, at 53.2 versus 54.3. But February's rates are respectable and not that much different than January.
ISM manufacturing composite index Consensus Forecast for March 12: 53.0
Range: 51.9 to 54.2
Construction spending in January slipped 0.1 percent, following a 1.4 percent increase the prior month and a 1.9 percent jump in November. The decline in January was led by a 1.5 percent decrease in private nonresidential outlays after a 2.1 percent gain the month before. Public outlays dipped 0.2 percent after a 0.7 gain in December. Residential spending advanced 1.8 percent after a 1.5 percent boost the prior month, reflecting recent gains in housing starts.
Construction spending Consensus Forecast for February 12: +0.7 percent
Range: +0.1 to +1.1 percent
Sales of total light motor vehicles jumped 6.5 percent in February to an annual rate of 15.1 million. The gain was centered in cars, especially imports. Domestics posted at a healthy 11.4 million unit pace, up 5.8 percent from the 10.7 million unit rate in January.
Motor vehicle domestic sales Consensus Forecast for March 12: 11.3 million-unit rate
Range: 11.2 to 11.5 million-unit rate
Motor vehicle total sales Consensus Forecast for March 12: 14.7 million-unit rate
Range: 14.3 to 15.2 million-unit rate
Factory orders fell back 1.0 percent in January, following very strong gains in the prior months of December at 1.4 percent and in November at 2.2 percent. Weakness is centered in durable goods orders which fell 3.7 percent (revised from the minus 4.0 percent in last week's durable goods data). Weakness here is widely spread but again follows unusual strength in prior months. Orders for non-durable goods, which always reflect price swings in commodities especially oil, rose 1.3 percent.
Other readings in latest report include a solid gain in shipments, up 0.9 percent, a rise in unfilled orders, up 0.6 percent, and a 0.6 percent build in inventories. Inventories, despite the monthly dip in new orders, are steady and lean with the inventory-to-shipment ratio unchanged at 1.33.
More recently, durables orders in February rebounded 2.2 percent.
Factory orders Consensus Forecast for February 12: +1.5 percent
Range: +0.8 to +2.0 percent
The Minutes of the March 13 FOMC meeting are scheduled for release at 2:00 p.m. ET. Traders will be parsing the minutes for FOMC participants’ views on the economy and whether a third round of quantitative easing is needed.
ADP private payroll employment increased 216,000 for February and the BLS estimate for private payrolls later posted at a 233,000 increase.
ADP private payrolls Consensus Forecast for March 12: 208,000
Range: 190,000 to 266,000
The composite index from the ISM non-manufacturing survey for February rose five tenths to 57.3—the highest level since February 2011 and well over breakeven of 50 to indicate moderately strong growth. Rising orders stood out as the new orders index gained 1.8 points in February to a robust 61.2.
ISM non-manufacturing composite index Consensus Forecast for March 12: 57.0
Range: 55.7 to 58.0
Initial jobless claims in the March 24 week fell 5,000 to 359,000 from a revised 364,000 in the prior week. The four-week average was down 3,500 to 365,000 from the prior week which was revised to 368,500 from 355,000. These levels are recovery lows. The latest numbers include annual revisions (primarily updated seasonal adjustments). The Labor Department noted nothing unusual in the data.
Jobless Claims Consensus Forecast for 3/31/12: 360,000
Range: 347,000 to 455,000
Good Friday
Markets Closed, Banks Open
SIFMA Early 12:00 p.m. ET Close
Nonfarm payroll employment in February grew 227,000 after gaining 284,000 in January and rising 223,000 in December. Overall payroll jobs now have risen more than 200,000 for three months in a row. Private payrolls were slightly stronger than overall, rising 233,000 in February after a 285,000 boost the month before. Average hourly earnings rose a modest 0.1 percent in February, following a 0.1 percent gain the month before. The average work week for all workers in February was unchanged at 34.5 hours. From the household survey, the steady unemployment rate at 8.3 percent reflected gains in both household employment and the labor force.
Nonfarm payrolls Consensus Forecast for March 12: 201,000
Range: 180,000 to 239,000
Private payrolls Consensus Forecast for March 12: 224,000
Range: 205,000 to 246,000
Unemployment rate Consensus Forecast for March 12: 8.3 percent
Range: 8.1 to 8.4 percent
Average workweek Consensus Forecast for March 12: 34.5 hours
Range: 34.5 to 34.6 hours
Average hourly earnings Consensus Forecast for March 12: +0.2 percent
Range: +0.1 to +0.3 percent
Consumer credit outstanding posted a $17.8 billion gain in January versus a revised $16.3 billion gain in December. During the last five months, outstanding credit has jumped $68.5 billion. In what is nearly a new record for an old series, non-revolving credit surged $20.7 billion in the month after increasing $12.6 billion in December. The big gain for the latest month offsets a slight decline in revolving credit which nevertheless, reflecting increasing use of credit cards, continues to trend higher. For the latest month, strength in non-revolving credit was about evenly divided between student loans and auto loans.
Consumer credit Consensus Forecast for February 12: +$12.0 billion
Range: $10.0 billion to +$18.0 billion
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.
Econoday Senior Writer Mark Pender contributed to this article.
|
![[Econoday]](images/econoday_logo_slim.gif){kind=logo}
![[Econoday]](images/logo.gif){kind=logo}